We study international propagation of both fundamental and non-fundamental shocks in a global production network model with information frictions. Producers in a sector do not perfectly observe other country-sector fundamentals, and their production decisions depend on their beliefs about worldwide exogenous states as well as other producers’ behavior. In this environment, “noise” shocks – errors in the public signals about fundamentals – propagate internationally and generate aggregate fluctuations. Our key theoretical result is that noise shocks propagate relatively more powerfully to the more distant parts of the network, while TFP shocks propagate less powerfully. Using a novel panel dataset containing the frequencies of country-industry specific economic news reports by 11 leading newspapers in the G7 plus Spain, we show that greater news coverage is associated with both smaller GDP forecast errors, and less disagreement among forecasters. We use these empirical regularities to discipline the parameters governing the severity of information frictions. We find that noise shocks are a quantitatively important source of international fluctuations.

This paper studies the impact of local income inequality on household consumption and welfare through the changing availability of varieties of consumer goods. I find that in high-inequality counties, more varieties are offered to households. However, households living in high-inequality counties purchase fewer varieties compared to similar ones in low-inequality counties. This happens even though households shop in more stores in high-inequality counties. These effects are even more pronounced for individuals in the tails of the income distribution. To quantify channels underlying these empirical findings and speak to the welfare impact, I develop a model featuring an endogenous number of varieties produced by firms and a choice over which varieties to purchase by households. After estimating many of the parameters of the model, I show that the model can reproduce both empirical facts. Quantitatively, I find that households are generally worse off when living in higher-inequality regions because firms are better able to segment the market. 

This paper studies how news affects firms' expectations of macroeconomic conditions. While previous research has shown that firms' industry conditions shape their aggregate expectations, small and medium-sized firms may not have access to privileged industry information, and instead rely on public news to learn about the economy. Thus, firms’ industry news would have a substantial role in shaping their view of aggregate conditions. Analyzing South African firm-level expectation data and news reports from major South African newspapers using Natural Language Processing models, we found that aggregate news impacts firms’ expectations on all aggregate variables while industry news only impacts firms’ expectations about inflation, economic growth, and interest rate. Interestingly, for firms’ expectations about variables affected by both types of news, industry news has stronger effect. Finally, industry news only impacts the expectations of small and medium-sized firms.